Daily Dish Signup Sidebar

Get the Daily Dish*

The Daily Dish

March 9, 2018

February Jobs

Gordon Gray

The February jobs report showed that payrolls were up by 200,000 in January of 2018, while earnings grew by 9 cents, reflecting stronger earnings growth than prevailed in 2017. This is a healthy jobs report, with somewhat better than expected payroll and earnings growth, but in many respects it reflects last year’s labor market trends. The highlight of the report was a 9 cent, or 2.9 percent year-over-year (YoY), increase in average hourly earnings. This growth rate outpaced the 2017 earnings rate of 2.5 percent and will spur optimism that a tight labor market conditions will finally show up in worker pay. However, these data may reflect minimum wage increases, rather than market forces at work. The unemployment rate and labor force participation rate were unchanged at 4.1 percent and 62.7 percent. The gaudier “2” in front of the payroll jobs number didn’t reflect quite enough growth in the employed population to edge the unemployment rate down to 4 percent. Within the unemployment rates there were some conflicting changes. Worker’s with less than a high-school degree saw their unemployment rate fall back to 5.4 percent after a jump in December. African-American unemployment which fell to a more-than-forty year low in December at 6.8 percent, jumped to 7.7 percent.

Here is a brief summary of the major economic indicators since the last jobs numbers:

The Producer Price Index for final demand increased 0.4 percent in January;

The Consumer Price Index increased 0.5 percent in January;

Real average hourly earnings decreased 2 cents from December to January;

What a difference a month makes. The Dow is down over a thousand points since last month’s employment prediction, while the Atlanta Fed’s GDPNow model forecasts Q1 GDP has settled to a healthy but more grounded 2.8 percent, down off of a transient but eyebrow-raising 5.4 percent. Meanwhile, the administration is publicly discussing the merits of trade wars. As is often the case, however, much of the headline news will not be reflected in the February jobs data.

There is every indication the February employment figures will reflect a strong labor market. January saw 200,000 workers added to U.S. firms, paired with earnings’ growth of 2.9 percent, appreciably above the 2.5 percent seen over the course of 2017. If the story for 2017 was steady economic recovery with missing earnings growth, then January may portend the appearance of the long-missing earnings growth.

Before breaking out the champagne though, it’s important to note three things. First, this is monthly data, and one month is not a trend. Monthly data is noisy and subject to considerable fluctuation. Second, digging a little deeper into the earnings data reveals that earnings for non-supervisory workers was well short of the headline 2.9 percent, meaning that the broad-based earnings gains from a healthy labor market remain elusive. And third, did I mention that monthly data is volatile? Just look at what happened to African-American unemployment, which jumped almost a full percentage point from a historic low of 6.8 percent to 7.7. percent in January.

The 200,000 payroll increase in January was well in excess of the preceding six-month as well as the entire 2017 average. There’s no economic law that demands that February won’t top January (ahem, monthly data is volatile), but in my view, it is more likely to return to a pace closer to the prevailing trend. These factors still suggest another healthy but less splashy payroll gain for January. I estimate that payrolls will add 175,000 jobs in January, and the unemployment rate will round up to 4.1 percent.

I expect workers to report a 6-cent hourly raise in February, a little off of last month’s pace.